Can Huffy keep scooting?

MIAMISBURG, Ohio (CBS.MW) -- Huffy Corp., once known for making low-end bicycles sold via discount retailers, is completing a turnaround.

The company
HUF, -0.23%
diversified its product line, outsourced production, sold off some distracting units to clean up its balance sheet, and caught the scooter craze far enough ahead of time to capitalize on booming sales last year.

But a slowing U.S. economy and the fading scooter fad carry the risk that the company's efforts to seize control of its future could stall. And, with a valuation of around $70 million, it remains a quintessential small-cap stock.

"They're not your father's bicycle company," says Richard Wayman, a senior analyst with ResearchStock.com, which specializes in small caps. "I think they're a cash machine," he said, citing the company's dominant position in the markets it operates in.

Wayman acknowledged, however, that the company is likely to have a tough time matching last year's performance because of the fading scooter fad and restructuring moves. And shares have given back most of the gains made in the second half of 2000 as investors bought into the scooter craze.

Still, some signs are positive.

On Thursday, the New York Stock Exchange returned Huffy to a "company in good standing" under the NYSE's continued-listing standards. The move followed successful achievement of both market capitalization and shareholders' equity in excess of $50 million over the past two quarters, Huffy said in a statement.

On Friday, shares rose 53 cents to close at $6.61 a share, helped by the NYSE move.

Wayman noted that the company has moved from being a single-brand manufacturer of Huffy bikes to a multibrand sports equipment company.

The company has added high-end bicycles with price points from $1,000 to $4,000.

It's also expanded its service business, in which it assembles bicycles and other products sold in retail stores.

In addition to scooters, the company sells basketball and football equipment.

Chairman and CEO Don Graber said the company has now shifted to "the Nike model," in which it designs and brands its products, but outsources production, primarily to China and Mexico.

Because the new business model allows Huffy to move quickly, the company can spot and take advantage of trends such as scooters, he said. It "allows us to move very quickly if something becomes very hot in the market place," Graber said.

Huffy sold its Washington Inventory Service in November for $84.7 million in a move that reduced debt. The sale helped the company to clean up its balance sheet and reduce interest costs, part of a plan submitted to the NYSE in June after the company fell below the exchange's market-capitalization and shareholder equity standards.

The sale followed an earlier move to shift manufacturing offshore, by selling a plant in Missouri and closing its Celia, Ohio, bicycle plant.

Earnings from continuing operations before charges for the fourth-quarter were $5.8 million, or 56 cents per share, vs. a loss of $8 million, or 79 cents a share in the year-earlier period.

For the year, earnings from continuing operations were $11.6 million, or $1.12 per share, vs. a loss of $14.1 million, or $1.33 for the prior year.

In January, the company said it expects to report earnings from continuing operations of 10 cents to 12 cents a share for the first quarter. For the year the company forecast earnings of $1 to $1.10 per share. The company cited weak economic forecasts for 2001 for the lower earnings forecast.

Graber said he still feels comfortable with those numbers. "If we have a reasonable economy, I'm comfortable with that," Graber said.

Wayman, who is projecting earnings of $1.08 a share for 2001, acknowledged that "they're going to have tough comps," because the wheels are off the scooter mania. In addition, the company is likely to see higher effective tax rates because it has used all of its tax loss carry-forwards.

Lit from within

Scooters "were the icing on the cake" for Huffy in 2000, Graber said, noting the trend appeared to have peaked the week after Thanksgiving.

Huffy has made no secret of the fact that it has retained UBS PaineWebber to advise the company on strategic moves, including the possibility of acquisitions, Wayman noted.

But Garber said there has been no movement of late on any acquisition. Any move would likely be in the area of sports equipment he said.

The company has expanded marketing of its dirt bikes and has also developed new products, such as a recreational basketball that's illuminated from within for night play.

"It's innovative," Graber says, although he acknowledges it's unlikely to find much acceptance at professional or college levels. "We don't quite anticipate that one happening."

Perhaps. But who would have thought the scooter would ever come back, either?

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